Securities industry regulations have long maintained that within a broker-dealer, the research team should function independently and free from influence from their investment banking colleagues. The Global Research Settlement (2003) codified this view, and the more recently passed JOBS Act (2012) provided a few important exemptions which an Emerging Growth Company may benefit from.
NASD Rule 2711 contains standards governing the relationship between research analysts and investment banking personnel. A key provision of this rule prohibits research analysts from participating in efforts to solicit investment banking business on behalf of their firm, including pitches for investment banking business. There is a provision in the rule, however, which provides that a research analyst may join their investment banking colleagues at a “pitch” meeting for an initial public offering of an Emerging Growth Company. The important caveat here is that the research analyst must limit their participation to winning the IPO business, and may not engage in any other prohibited conduct during this “pitch”, such as soliciting other investment banking business.
An emerging growth company is an issuer with total annual gross revenues of less than $1 billion during its most recently completed fiscal year.
The rule also regulates the activities of research analysts in regard to the publication or distribution of a research report, and the making of public appearances. The rule generally prohibits the publication or distribution of a research report, as well as public appearances, following an offering of an issuer’s securities. Specifically, if the broker-dealer acted as a manager or co-manager of an IPO, a research analyst from that broker-dealer would be unable to a publish research or make a public appearance for 40 calendar days following the date of the offering. If the offering was not an IPO but a follow-on offering, this prohibition would last for 10 calendar days. In the case where the broker-dealer was acting in a non-managerial role (such as a member of the syndicate) for an IPO, they would not be allowed to publish research or make public appearances for 25 calendar days.
In addition, broker-dealers who acted as managers or co-managers in a securities offering may not publish or distribute research reports or make public appearances for those companies 15 days prior to after the expiration, waiver, or termination of a lock-up agreement that restricts or prohibits the sale of securities held by the subject company or its shareholders after the completion of a securities offering.
These prohibitions on the publication or distribution of research reports, as well as the making of a public appearance, have been waived in the case of an initial public offering or follow-on offering of the securities of an Emerging Growth Company.